Picture graduating from college and landing a job that offers a good salary, health benefits, a retirement package — and your employer will help pay off your student loans.
More and more companies are jumping on this bandwagon, sponsoring benefit programs to help repay their employees’ student loans. With student loan debt ballooning to more than $1.5 trillion, the benefits of student loan repayment assistance are clear on both ends: Employers get the leverage they need to attract and retain millennial talent, and new hires find professional advancement and help on their student debt.
But there is one drawback: Under the current tax laws, employer student loan repayment is taxable. Like your paycheck, it’s counted as income and subject to income tax, meaning there could be tax consequences of an employer paying student loan debt.
Does this mean that accepting student loan help isn’t worth it? Not necessarily. Offsetting the tax burden may be possible with smart student loan decisions, and some proposed congressional legislation may eventually allow companies to contribute tax-free to help employees repay their student loans.
Let’s take a look at:
- How job-sponsored student loan payments work
- Beware the tax consequences of employer student loan repayment
- How to make sure you benefit from student loan repayment
- Next steps
Currently, only 8% of companies offer employer student loan repayment assistance, but that’s up from just 4% a year ago, according to a survey by the Society for Human Resource Management. Companies that do offer this benefit generally allocate a certain amount of money from their budgets for employees with student loans.
Here are some examples of high-profile companies that offer student loan repayment benefits:
- Fidelity Investments offers a $2,000 reimbursement package distributed over five years to employees who pass the six-month mark at the firm. Employees can receive up to $10,000 per borrower towards student loan repayments. So far, more than 9,000 employees have participated in the benefit.
- Education technology company Chegg disburses up to $5,000 a year to entry-level and manager-level employees in the U.S. for student loan repayment, while more senior employees can receive up to $3,000 annually, funded through selling shares set aside for employees. As a separate benefit, employees can receive up to $1,000 per year in cash for debt repayment.
- PricewaterhouseCoopers’ student loan paydown plan gives employees the chance to receive $1,200 a year toward student loan debt, up to $10,000. The company says the benefit helps shave up to three years off student loan repayment.
- Global asset management company Natixis offers workers $1,000 immediately to use toward student loan debt, along with $83.33 per month paid directly to the student loan servicer. The benefit maxes out at $10,000 over a 10-year period, as long as the individual is still an employee during the duration.
- Aetna offers student loan repayment assistance to employees with eligible loans that meet company guidelines. It will start providing a $2,000 annual match for employee student loan payments, maxing out the benefit at $10,000. To be eligible, employees must work at least 20 hours per week.
Don’t confuse student loan repayment with tuition reimbursement. Tuition reimbursement is offered to employees who are taking classes while they are working. Under IRS rules, if your employer provides up to $5,250 annually in educational assistance for undergraduate or graduate-level courses, it is tax-deductible.
Student loan repayment is a different story. For now at least, employer student loan repayment is taxable. You’ll need to claim any amount on your tax return if your employer compensates you for your loans, no matter what the company policy or payout is. Considering that it qualifies as taxable, it would technically be closer to a salary bonus than a benefit.
All that may change if the Employer Participation in Repayment Act of 2019, currently working its way through Congress, is passed. The bill, sponsored in the Senate by Sen. Mark Warner (D-Va.) and Sen. John Thune (R-S.D.) and in the House by Rep. Scott Peters (D-CA), would amend existing tax code to allow employers to give tax-free student loan assistance up to $5,250 a year per employee.
While proposed legislation winds its way through Capitol Hill, don’t let tax fears discourage you from participating in an employer-backed student loan assistance program. If you’re concerned that you’ll end up paying more in taxes to the IRS compared with what you’d likely save in student loan payments each month, consider the following:
Tax rates and potential savings depend on your finances
Minimizing the tax hit will depend on several factors, like the interest rate and terms of your student loans, your salary and the structure of your employer’s student loan assistance program. Crunch some numbers to see if you’ll come out ahead of the tax liabilities by receiving student loan benefits from your employer.
Some programs are already tax-free
Some public sector student loan repayment programs are tax-exempt, including the National Health Service Corps Loan Repayment Program, the Public Service Loan Forgiveness program and other similar loan repayment or forgiveness programs. If you choose a position in a qualifying program or field that already offers loan repayment or forgiveness, then you don’t have to factor employer contributions into your decision-making when accepting a position. With the money you’re saving on loan repayment, you may be able to direct more funds into your retirement savings account.
Refinancing can save you even more
Student loan refinancing can provide borrowers with a lower interest rate, better repayment terms and higher quality service. Combine it with repayment assistance from your employer, and you could come out on top financially. Just remember, once you refinance federal loans, you permanently lose access to the various federal aid programs, such as income-driven repayment plans and Public Service Loan Forgiveness.
Research potential employers’ student loan repayment policies
When considering potential employers, recent grads are increasingly looking for loan repayment assistance as a benefit. A Student Loan Hero survey found that nearly 39% of students said it was a very important or extremely important benefit. Future employers who reimburse student loans may be ahead of the curve on the tax-savings front.
Some companies have begun partnering with startups like Student Loan Genius, whose student loan 401(k) contribution feature links retirement savings to student loans. With the feature, companies can contribute pretax dollars to an employee’s retirement account each time the employee completes a student loan payment.
Consider your retirement
There’s a less-obvious benefit of working with an employer who will contribute to your student loans: The faster you pay off your student loans, the sooner you can really tackle your retirement contributions.
For now, prioritize your student loan payments and weigh the pros and cons between the benefits you’re likely to receive against the taxes you’ll need to pay. A student loan repayment assistance program can help you get a leg up on your finances while also advancing your career. The number of companies offering this benefit is growing, and Student Loan Hero’s tools can help you search for participating employers.
By keeping abreast of emerging companies participating in student loan payment programs, as well as pending legislation, paying off your balance and reducing debt are just a few ways to get your job to work for your loans.
Alli Romano contributed to this report.
The information in this article is accurate as of the date of publishing.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 6.65%1||Undergrad & Graduate|
|1.99% – 7.10%2||Undergrad & Graduate|
|2.99% – 6.44%3||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|1.99% – 6.43%4||Undergrad & Graduate|
|3.18% – 6.07%5||Undergrad & Graduate|
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1 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of June 23, 2020. Information and rates are subject to change without notice.
2 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Splash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member.
The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website.
You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 1, 2020.
Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan).
Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.19% APR (with Auto Pay) to 6.43% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.43% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of June 15, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 6/15/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.19% effective June 10, 2020.